No. 211 October 2013
IS BRAZIL CATCHING UP OR FALLING BEHIND?
IS BRAZIL CATCHING UP OR FALLING BEHIND?
André Nassif, Carmem Feijó and Eliane Araújo
No. 211 October 2013
Acknowledgements: The authors thank Luis Carlos Bresser Pereira, José Luis Oreiro, David Kupfer, Fernando Puga, Erika Amorim, Claudio Leal, Jorge Arbache, Samuel Pessôa and the two anonymous UNCTAD referees for their comments and suggestions. Any remaining failures are the authors’ responsibility.
UNCTAD/OSG/DP/2013/1
The opinions expressed in this paper are those of the authors and are not to be taken as the official views of the UNCTAD secretariat or its Member States. The designations and terminology employed are also those of the authors.
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JEL classification: O11; O40; O47
Contents
Page
Abstract ... 1
I. INTRODUCTION ... 1
II. STRUCTURAL CHANGE AND ECONOMIC DEVELOPMENT: THE THEORETICAL FRAMEWORK ... 3
A. Towards a structuralist theory of economic development: a Kaldorian-Thirlwallian approach ... 3
B. Stylized facts and a basic hypothesis on structural change and economic development ... 6
III. STRUCTURAL CHANGE IN THE BRAZILIAN ECONOMY: INDUSTRIALIZATION (OR DE-INDUSTRIALIZATION), CATCHING UP (OR FALLING BEHIND) SINCE THE 1970s? ... 8
A. An overview of the Brazilian industrialization process ... 8
B. The connections between the stylized facts on structural change and economic development and the empirical evidence for the Brazilian economy ... 10
IV. ECONOMETRIC EVIDENCE: THE KALDOR-VERDOORN’S AND THIRLWALL’S LAWS ... 18
A. Estimating the Kaldor-Verdoorn coefficient for the Brazilian economy (1970–2010) ... 18
B. Estimating the income elasticity of demand for Brazilian exports and imports (1980–2010) ... 19
V. CONCLUDING REMARKS ... 22
ANNEX A: Manufacturing industry according to technological intensity ... 24
ANNEX B: Data sources ... 25
REFERENCES ... 26
List of tables 1 The main sectors of activity as a share of total real value added in Brazil, selected years ... 9
2 Participation of employment in Brazil by sector of economic activity, selected years ... 13
3 Estimate of the Kaldor-Verdoorn coefficient for the Brazilian economy, 1970–2010, econometric estimate of equation (2) ... 19
4 Explanatory factors and income elasticity of demand for imports in Brazil ... 20
5 Explanatory factors and income elasticity of demand for exports in Brazil ... 21
6 Thirlwall’s Law ... 21
List of figures 1 Value added in the Brazilian manufacturing sector according to technological intensity, selected years ... 11
2 Percentage of total employment in the Brazilian manufacturing sector according to technological intensity, selected years ... 12
3 Labour productivity growth of the Brazilian manufacturing industry, 1970–2008 ... 15
4 The Brazilian technological gap: relative labour productivity in the Brazilian manufacturing sector compared with that of the United States, 1970–2008 ... 15
5 Brazilian total exports classified by intensity of value added, 1970–2010 ... 16
6 Trade balance of the Brazilian manufacturing industries classified by technological intensity, 1970–2008 ... 17
IS BRAZIL CATCHING UP OR FALLING BEHIND?
André Nassif,* Carmem Feijó** and Eliane Araújo***
Abstract
We present a Kaldor-Thirlwall theoretical and empirical framework on the basic driving forces of the behaviour of productivity and economic development in the long-run. By calculating the so- called Thirlwall equation, the main contribution of our research is to examine whether Brazil has been catching up or falling behind. We show some empirical evidence based on both descriptive statistics and econometric regressions for Brazil between 1970 and 2010. Some important indicators of descriptive statistics reveal that Brazil has entered into a process of early de-industrialization.
In addition, since our econometric estimates also show that there was a dramatic increase in the income elasticity of demand for imports between 1980–1998 and 1999–2010 (from 1.97 to 3.36) and a small decrease in the income elasticity for exports during the same periods (from 1.36 to 1.33), we conclude that Brazil not only has already embarked on a trajectory of falling-behind relative to the world economy and the international economic frontier, but also that it might show, in the absence of appropriate policies, lower growth rates in the long run. However, if the opposite occurs, it would face major long-term external constraints to growth.
I. INTRODUCTION
Since classical political economy, questions related to how to accelerate and sustain economic development in order to achieve both high real income per capita and social well-being levels have always been in the focus of economics. Many economists believe that economic development depends on mostly economic factors, but it is also, in fact, influenced by a set of non-economic phenomena, such as history, geography, anthropology, sociology, culture, among others.1 However, the isolation of any other non-economic or even economic factor – note that when theoretical economists do this, they use the common expression
“considering all else equal” or what is known as the “ceteris paribus” hypothesis – is not a disadvantage per se when we are interested in capturing the main economic factors which influence most economic phenomena. For instance, in the case of economic development, nowadays there is practically a consensus that it is mostly determined by growth in productivity over time, which is, in turn, concretized by physical
1 See the provocative book by McCloskey (2010).
* Fluminense Federal University and The Brazilian Development Bank (BNDES), Brazil; e-mail: andrenassif27@
gmail.com.
** Fluminense Federal University, Brazil; e-mail: [email protected].
*** State University of Maringá, Brazil; e-mail: [email protected].
and human capital accumulation as well as technological progress.2 In practical terms, these latter factors are responsible for sustaining high rates of growth in productivity in a particular country, and therefore, considering the average growth in the world economy as a given, for accelerating the process of catching up.
Yet, the central point of divergence among economists is concerned with the most important sources for boosting growth rates in productivity both in absolute and relative terms in a developing country in order to reduce the technological gap with respect to developed countries and, therefore, to ease the process of catching up in the long run.3 The focus of this paper has two characteristics: first, it is structuralist and Kaldorian in the sense that the behaviour of productivity in the long run is mainly determined by factors that affect aggregate demand, which, in turn, is strongly conditioned by both monetary, fiscal and exchange rate policies; and second, that behaviour, when successful, is reflected, firstly, in a strong shift of resources from traditional sectors like the primary one to the manufacturing one, and then, after the country has achieved high levels of real income per capita, to the service sector. Several authors have argued that, together with other facts, when the rapid and large loss of participation of the manufacturing sector in total value added and mainly in total employment occurs before the country has reached high levels of per capita income, this phenomenon characterizes an early de-industrialization4 and can strongly retard the process of catching up or even put the economy into a trajectory of falling behind.5, 6 It is important to remark that the significant loss in participation of the manufacturing sector in total value added is a natural phenomenon in developed countries, because at this stage of development, the domestic income elasticity of demand for services is a little higher than that for manufactured goods (see Clark, 1940).
The theoretical framework of this paper is based on Kaldor and Thirlwall theories on the basic driving forces of the behaviour of productivity and economic growth in the long run. From the Kaldorian view, we will base our work on the hypothesis that the main sources of the behaviour of the aggregate productivity come from the manufacturing sector. The main empirical justification is that this sector, compared to the primary and service sectors, operates under significant static and dynamic economies of scale, such that it has the highest capacity to disseminate its gains from productivity to the economy as a whole.7 By anchoring on this Kaldorian hypothesis, we also show that the more a country is able to construct a large and diversified manufacturing sector during its catching up process, the more will be its capacity to sustain high rates of economic growth in the long run. In the literature on economic development,
2 Within the neoclassical literature, see Lucas (1988), Romer (1986, 1990), and Grossman and Helpman (1991), among others. For a structuralist-evolutionary view, see Nelson and Winter (1982), Fagerberg (1988), and Dosi, Pavitt and Soete (1990), among others.
3 In economics, the long run refers to economic time, rather than calendar time. However, even in terms of calendar time, the period during which a country becomes successful in catching up depends on several factors, such as the size of the country, the quality of the industrial, technological and institutional policies implemented, and a fine coordination of these latter policies with macroeconomic policies. For instance, the Republic of Korea could catch up in a period of around 25 years, while China, if it will actually succeed in doing that, will take much more than 30 years. See Amsden (1989) for the Republic of Korea, and Amsden (2001), for comparing the hard efforts of several developing countries to search for adequate strategies to promote structural change and catching up.
4 For other details on the recent literature about early de-industrialization, see Rowthorn and Wells (1987), Rowthorn and Ramaswany (1999) and Palma (2005).
5 In the definition of de-industrialization, Rowthorn and Wells (1987) gives special importance to the loss of participation of the manufacturing sector in total employment, rather than in total value added.
6 Then, the significant loss of participation of the manufacturing sector in total value added is a natural phenomenon in developed countries, because at this stage of development, the domestic income elasticity of demand for services is a little higher than that for manufactured goods. For other details on de-industrialization, see Rowthorn and Wells (1987), and Rowthorn and Ramaswany (1999).
7 Static economies of scale occur when a firm doubles its total investment and the amount of the new production more than doubles. Therefore, considering that the factor prices used in that investment are kept constant, the long-term unit cost reduces. Dynamic economies of scale occur when a firm is able to reduce long-term unit costs by implementing successful innovations over time and, therefore, tends to accumulate learning-by-doing, knowledge and major technological capacity.
this relationship between the real output of the manufacturing industry and its positive effects on the productivity of the economy as a whole is known as the Kaldor-Verdoorn Law.
This Kaldorian theoretical framework will additionally be complemented by the Thirlwall hypothesis on the importance of a country to have an income elasticity of demand for exports above the income elasticity of demand for imports if the country intends to sustain economic growth without facing balance of payments constraints (Thirlwall’s Law). This hypothesis makes it clear why it is important for a developing country to have not only a large and diversified export composition, but also the majority of its net exports (exports minus imports) basket composed of goods of high income elasticity of demand in the long run.
The relevance of the paper for an emerging country like Brazil is that, despite the fact that this country has been successful in building a relatively large and diversified manufacturing sector, it is still not an industrialized country in the Kaldorian point of view. That is to say, it has not yet reached the same stage of maturity as developed countries.8 So, since responding to part of the title of this paper (“is Brazil catching up or falling behind?”) has normative implications, the paper can assist policymakers in evaluating whether or not the actual short and long-term economic policies lato sensu (industrial and technological policy, macroeconomic policy and so on) are in tune with each other in order to sustain the long-term economic growth of the Brazilian economy and promote the process of catching up with developed countries.
Besides this Introduction and the Conclusion, the paper is organized as follows. Section II presents the main hypothesis and stylized facts on structural change and economic development based on the Kaldor-Thirlwall theories. Section III, by connecting the previous stylized facts and a basic hypothesis on the same theme with empirical evidence on the Brazilian economy based on descriptive statistics for the 1970–2010 period, provides a preliminary answer of whether or not Brazil has already entered into early de-industrialization.9 Section IV presents two important pieces of econometric evidence: first, by estimating the so-called Kaldor-Verdoorn coefficient for the 1970–2010 period, we will show if the Brazilian manufacturing sector operates under dynamic economies of scale, a necessary (but not sufficient) condition for sustaining both high rates of productivity and growth in the long run; and second, we will estimate the long-term income elasticities of demand for imports and exports for the Brazilian economy for the 1980–2010 period. This is essential evidence for showing if Brazil has either faced major external constraints to long-term economic growth or kept more distant from the international technological frontier.
II. STRUCTURAL CHANGE AND ECONOMIC DEVELOPMENT:
THE THEORETICAL FRAMEWORK
A. Towards a structuralist theory of economic development: a Kaldorian-Thirlwallian approach Most economists today practically agree with the hypothesis that both innovation and technological spillovers are the main engine for explaining productivity growth. However, while neoclassical economists tend to give all sectors of the economy equal weight for explaining the productivity behaviour of the economy as a whole, structuralist economists, by identifying the manufacturing industry as the main creator and disseminator source of technical progress as well as the principal source of significant static and
8 For a discussion about the stages of development of the Brazilian manufacturing industry, see Feijó and Lamonica (2012).
9 Due to unavailability of data, descriptive statistics on the Brazilian manufacturing sector will only cover the period between 1970 and 2008.
dynamic increasing returns to scale, argue that the manufacturing sector is the main force for explaining the aggregate productivity.10
The importance given to the maximization of static and dynamic increasing returns to scale as the main explanatory factor for boosting both aggregate productivity and (therefore) economic development is relatively old in economics. The general idea was presented not only by authors like Adam Smith (1776) and Allyn Young (1928), but also by authors like Paul Rosenstein-Rodan (1943), Albert Hirschman (1958) and Gunnar Myrdal (1957), among others. However, it was not until the publication of a set of Kaldor’s theoretical and empirical essays in the mid-1960s and the 1970s that the justification of the manufacturing sector as the location for most industries subject to increasing returns to scale was so clearly and precisely demonstrated (see Kaldor, 1966, 1967, 1968, 1970 and 1975).
Before summarizing Kaldor’s main hypothesis on the relationship between structural change and economic development, two points must be stressed: first, as Clark (1940) had already pointed out, Kaldor (1966) also recognized that as soon as economic development reaches maturity – that is to say, the stage in which countries, by having already caught up, are able to exhibit high levels of income per capita and well being –, a relatively significant loss of participation of the manufacturing industry in total real GDP is accompanied by a major participation of the service sector; and second, one could argue that, since a lot (but not the majority) of the new ideas, knowledge and dynamic economies of scale are now being generated in the tradable service sector, the effects of the microelectronic and telecommunication revolution (for most, the third industrial revolution) on the representative role of the manufacturing sector for economic development, as supported by Kaldor (1966), is becoming passé.
As to that latter point, the criticism is misleading for several reasons: first, as Kaldor presented his principal arguments when the service sector was composed basically of nontradables, he certainly would have recognized the role of the tradable services today as additional forces to those coming from the manufacturing sector in accelerating and sustaining the development process; second, even if we take into account the increasing participation of several important tradable services (e.g. software) as being subject to static and dynamic increasing returns to scale in the entire service sector, the fact is that the majority of this latter phenomenon occurs and could continue to occur in the process of manufacturing production;11 and third, and perhaps more importantly, following the insights pioneered by Young (1928), Kaldor (1966:
106) stresses that both static and dynamic “increasing returns (to scale) are a “macro-phenomenon” – just because so much of the economies of scale emerge as a result of increased differentiation, the emergence of new process and new subsidiary industries, they cannot be discerned adequately by observing the effects of variations in the size of an individual firm or a particular industry”.
The interpretation of the static and dynamic economies of scale as a “macro-phenomenon” is essential for understanding Kaldor’s hypothesis on the importance for developing countries to have a strong and diversified manufacturing industry, especially during the time when their manufacturing sector is in a trajectory departing from the immaturity to maturity stage. In addition, it is important to stress that, in a Kaldorian framework, the more a country has its manufacturing industry formed by segments which operate under static and dynamic increasing returns to scale, the more rapid is its catching up process.
Then, for Kaldor (1966), economic development is a process through which structural change happens.
That is to say, the productive resources are strongly reallocated from the traditional sector (especially agriculture) to the manufacturing sector (mainly those segments of more technological sophistication,
10 Karl Marx was, perhaps, the first author to emphasize the importance of technical progress in the development process (Marx, 1887, especially Vol. I, chapter XV, “Machinery and Large-Scale Industry”). Yet, the incorporation of this force as endogenous to economic development was only first emphasized by Schumpeter (1942).
11 To give an example, various activities generated in the conception of goods produced by Apple, such as the creative ideas, knowledge and engineering of projects may be developed in the service sector. However, the majority of Apple family goods (i-pods, i-phones, i-pads and so on) are produced by segments of the manufacturing sector which operate under conditions of significant increasing returns to scale.
namely those that are engineering-, science- and knowledge-based).12 Only when a country has already reached the maturity stage (in other words, a developed country with an income per capita significantly above the world average) could the loss of the participation of the manufacturing industry in total GDP be accepted as natural.
In his seminal paper, Kaldor (1966) enumerated the following hypotheses on structural change and economic development as well as giving the econometric evidence which supports them:13
(i) Long-term economic growth of a country is largely associated with the relative size and diversification of its manufacturing industry. Not only due to its high capacity for generating innovation and disseminating technological spillovers throughout the economy as a whole, but also by virtue of its above mentioned presence in static and dynamic increasing returns to scale, the manufacturing sector dictates the dynamism of aggregate productivity growth.
(ii) Insofar as the static and dynamic economies of scale presented in the manufacturing sector are understood as a “macro-phenomenon”, once economic development is sustained, the synergies between the increase in productivity in the manufacturing industry and the positive changes in productivity in the economy as a whole make aggregate productivity become largely associated with the increase in total output. This result, which is known as the Kaldor-Verdoorn Law, is largely explained by dynamic economies of scale.14, 15 By associating the different levels of per capita income reached by a country with a minor or major propensity to consume manufacturing goods, Kaldor was perhaps the first author to call attention to the importance of preventing a country from early de-industrialization, especially at the stage during which it has reached a level of income per capita close to the world average. In fact, since at this stage societies tend to have a high propensity to consume manufactured goods – that is to say, their income elasticity of demand is significantly above one –, a high and sustained growth of the manufacturing sector contributes to boosting economic growth in the long run.
(iii) As if anticipating Thirlwall’s (1979) model of the balance-of-payment constraint to growth, Kaldor (1966) suggested that, mainly in either intermediate or relatively advanced stages of development, net exports must increase at a faster rate in order to finance the high need of imported capital goods. The important question that could be raised as to this point is as follows: if it is a high demand increase in the manufacturing sector which governs the pace of growth in the economy as a whole, why should a weak foreign demand for exports constrain economic development even in large economies like the United States, China or Brazil? The answer is far from being associated with supporting an export-led growth strategy for these countries, insofar as the large size of their domestic market is perhaps more important than exports for boosting the advantages of economies of scale in the manufacturing sector. The main reason is that the more a country can augment and diversify its exports through a major composition of goods with high income elasticity of demand, the less will be the external constraint to economic growth in the long run. In fact, if one observes
12 In our empirical analysis ahead, we will break down the manufacturing sector into three groups: labour intensive;
natural resource-based; and engineering-, science- and knowledge-based.
13 McCombie and Thirlwall (1994) call these hypotheses Kaldor’s Laws.
14 Verdoorn (1949) was the first author to suggest this association.
15 Kaldor (1966) showed econometric evidence on this relationship (see table 2: 107). As McCombie and Thirlwall (1994, chap. 2) summarized, despite a variety of empirical works attempted to validate or not the Kaldor-Verdoorn Law for a group of countries in the long run, the results, in principle, seemed not to be conclusive. However, since Kaldor (1970) later argued that it is more appropriate to estimate the “differences in “regional” growth rates [taking into account the]
different areas within the same country […], for there are few, if any, economic barriers to the interregional mobility of capital and to interstate migration”, McCombie and Thirlwall (1994: 209) also summarized the estimates of the Kaldor- Verdoorn Law respecting Kaldor’s suggestion and concluded that “the assumption of output growth is fundamentally demand, rather than supply, determined more plausible at both the international and the regional level”.
experiences of economic development in countries like Japan after World War II, the Republic of Korea from 1960 to1985 and China from 1979 on, it could be concluded that all of them have been successful in shifting the composition of their exports from small kinds of traditional goods (labour intensive and natural resource-based) to very diversified goods, especially science-, engineering- and knowledge-based goods which make up the majority of total exports.16
(iv) The behaviour of economic growth is not supply-constrained neither in the short nor in the long run.
As to this point, if, on the one hand, Kaldor supports Keynes’s (1936) hypothesis that the behaviour of aggregate demand in the short run explains the business cycles and that the insufficiency of effective demand explains recessions and depressions, on the other hand, since the Kaldor-Verdoorn Law is in operation and under the assumption that there are no external constraints to growth, the supply of the economy can elastically respond to the increase in demand in the long run within limits. As a matter of fact, Kaldor does not completely discard the role of some supply constraint to long-term growth.
In fact, he observes at least two main forces from the supply side that could constrain long-term growth: first, the slow capacity of supply to respond to the increase in demand, especially of inputs and raw materials; and second, the shortage of labour supply. In the first case, Kaldor (1966: 115) argued that, unless there is a balance of payment constraint, there is no reason to believe in a supply constraint of this kind because it would only arise if “a particular rate of growth generates a rate of growth of imports which exceeds the rate of growth of exports”. In the second case, the answer is a little more complex. Kaldor (1966) accepts that as the country is in a trajectory of catching up and structural change, sooner or later, the unlimited labour supply (see Lewis, 1954) provided by the excess of manpower coming from agriculture will be over. While the manufacturing sector is not able to completely absorb the labour force growth as the economy shifts from immaturity to a developed stage, since the service sector is less sensitive to demand fluctuations, it could employ the excess labour supply to demand. This explains why de-industrialization in mature economies tends to reduce the participation of both manufacturing (expressed by the value added) and employment in total real GDP. However, by implicitly adopting a Schumpeterian view, Kaldor (1966: 117–121) argues that technical progress is the dramatic engine that tends to “so radically reduce the labour requirements in industry as to make it possible to combine growth with falling industrial employment” in such a way that there is nothing but a “reservoir of surplus labour, or disguised unemployment, instead of a shortage of labour in the long run”. This conclusion reinforces Kaldor’s main hypothesis that, by reducing external constraint, it is the dynamic economies of scale associated with the manufacturing sector, governed, in turn, by the demand side, which explains the long-term growth and the catching up process.
B. Stylized facts and a basic hypothesis on structural change and economic development
In this subsection, we will present some stylized facts and a basic hypothesis on structural change and economic development which, together with the above discussed theoretical framework, will serve as the analytical basis for the empirical evidence that will be shown in sections III and IV.17
Stylized fact 1: Economic development is a process of deep structural change of the economy
As Prebisch (1950) has emphasized a long time ago, although economic development is basically determined by technical progress, the issue is that technology is neither generated nor equally distributed
16 As will be shown ahead, in the empirical evidence, we will break down the manufacturing industry into three groups classified according to their technological sophistication: labour intensive; natural resource-based; and science-, engineering- and knowledge-based. The respective segments of each group are described in annex A.
17 Most of these stylized facts are based on Cimoli and Porcile (2011).
between developed and developing countries. Cimoli, Porcile and Rovira (2010), Cimoli and Porcile (2010a; 2010b) and Cimoli and Porcile (2011) have reactivated some of Prebisch’s and Kaldor’s original ideas in order to support empirical evidence on how, by dominating the technical progress of the world, the productive structure of developed countries continues to be much more complex and diversified than that of developing countries. This means that economic development can be understood as a process through which a deep structural change occurs in the economy, in such a way that there is a reallocation of resources from the primary sector to the manufacturing sector, and, then, as soon as countries have achieved high levels of income per capita, from that latter sector to the service sector. So, economic development with deep structural change means that both the productive structure of the economy and the composition of net exports are mostly dominated by the presence of manufacturing segments that produce science-, engineering- and knowledge-based goods.
Stylized fact 2: Countries characterized by a productive structure and pattern of specialization concentrated in primary goods or natural resource-based manufactured commodities tend to direct most of the employment toward these sectors
In countries that basically specialize in primary products and natural resource-based manufactured commodities, the majority of the employment generated tends to be absorbed by these sectors. Even during the boom phases of the business cycle, the presence of a significant part of the informal employment can be dissembled and masked by a “paradox of full employment” (see Cimoli and Porcile, 2010b).
From a structuralist perspective, given the dramatic level of the informality of manpower, however, the unemployment rate is usually relatively high. Not by chance, these countries tend to weakly sustain the international competitiveness of these goods based on low wages. However, whenever either the domestic currencies of these countries are overvalued in real terms or the terms of trade are temporarily favourable, wages tend to artificially increase and destroy that “spurious” kind of competitiveness (Fajnzylber, 1988).
The main implication is that, by being basically determined by low relative wages, rather than by higher relative labour productivity, this pattern of static comparative advantage is not favourable to economic development (see Cimoli and Porcile, 2010a).
Stylized fact 3: The more rapidly a country is able to build and sustain a large and diversified manufacturing sector with a significant participation in total GDP and total net exports, the more rapidly it will catch up.
When several factors (lack of appropriate short-term and long-term economic policies, inadequate institutions, lack of political consensus on how to accelerate economic development, etc.) prevent countries from developing a large and diversified manufacturing industry, they tend to specialize in goods with static comparative advantage, especially in labour intensive and natural resource-based goods.18 Since these sectors have low capacity of generating and diffusing technical progress as well as of taking advantage of dynamic economies of scale, the technological gap increases to such a magnitude that the development process tends to become locked-in in a regressive technological path (see Arthur, 1989).
So, the catching up process is more rapid when countries are successful in producing structural change and redirecting most of their exports towards science-, engineering- and knowledge-based industries.
18 One could correctly argue that some natural resource-based manufacturing segments (e.g., oil refining, natural gas, paper and cellulose, and others) have a high capacity to generate technological spillovers and produce backward and forward linkages with industries of medium or high technology. For instance, investments and appropriate industrial policies in the oil industry (e.g. government purchasing policy and tax stimulus) could boost some industries of medium or high technological sophistication (through mainly backward linkages), such as the shipbuilding industry, oil and petrochemical equipment and some others. The issue is that a country will be hardly able to produce and sustain significant dynamic economies of scale in the Kaldorian sense in the long run if it becomes highly dependent on a small group of natural resource-based industries.
Hausmann, Hwang and Rodrik (2007) showed that “what you export matters”. That is to say, countries whose export basket has a significant part composed of products of high technological sophistication tend to show higher rates of economic growth in the long run. By contrast, if their productive structure and pattern of specialization is dominated by labour intensive and natural resource-based goods, countries tend to experience a falling behind path.
Basic hypothesis on structural change and economic development: The more a country directs its productive structure and net export basket to very diversified goods, with a major presence of the science-, engineering- and knowledge-based sectors, the larger will be its degree of intensity of structural change.
This above hypothesis depends on the so-called Thirlwall’s Law (see Thirlwall, 1979), as follows:
M X i
Y Y
p
= e
*
(1)
Where Yiis the rate of economic growth in the domestic country; Y* is the rate of world economic growth;
e
Xis the income elasticity of demand for exports; andp
Mis the income elasticity of demand for imports.Thirlwall’s Law suggests that the convergence of the rate of economic growth in a particular country (say, a developing country) to the world economic growth depends on the ratio between the income elasticity of demand for exports and income elasticity of demand for imports. In other words, if the income elasticity of demand for exports increases above the income elasticity of demand for imports, economic development is sustained because economic growth will not be constrained by balance of payments constraints in the long run.
III. STRUCTURAL CHANGE IN THE BRAZILIAN ECONOMY: INDUSTRIALIZATION (OR DE-INDUSTRIALIZATION), CATCHING UP (OR FALLING BEHIND)
SINCE THE 1970s?
This section shows descriptive statistics on the evolution of the structural change and economic development in Brazil. The statistics on foreign trade cover the period 1970–2010. By contrast, due to a lack of data, most of the indicators related to Brazil’s manufacturing performance cover the period 1970–2008.
A. An overview of the Brazilian industrialization process
From 1947 to 1980, the Brazilian economy grew (6.4 per cent per year) above the average of both developed and underdeveloped economies, showing a strong vigour under the leadership of the manufacturing sector.
This sector exhibited an average growth of 8.6 per cent per year in the same period.19 During the 1970s, particularly, the industrial sector showed average yearly growth rates close to 7.4 per cent. These results can be explained to a great extent by the strategy of import substitution to complete the industrialization process of the country. Indeed, between 1947 and 1980, the manufacturing sector increased its participation in total GDP from 19.3 per cent to 31.3 per cent (table 1). This increase can be, at least partially, credited to the relative success of the implementation of three national development plans: Targets Plan (Plano de Metas, 1956–1961), the First National Development Plan (I PND, 1968–1973) and the Second National
19 This expansion was not continuous over time, exposing the period 1963–1967 as the least dynamic (average economic growth rates of 2.7 per cent per annum).
Development Plan (II PND, 1974–1979), which contributed to promoting significant changes in the productive structure of the country (Castro, 1985).
Although many criticisms received by the actual implementation of the strategy of the import substitution regime in Brazil are more than valid (e.g. very high rates of effective protection compared with those imposed by some successful Asian countries, inefficiency in policy implementation, negligence in carrying out policy evaluation, lack of high investments in education, among others), that strategy was responsible for the building of a large and diversified manufacturing sector in Brazil. Except for a few short periods, the extraordinary pace of economic growth was only interrupted, at the end of the 1970s, by the external debt crisis in 1980–1982, which revealed the unsustainability of the chosen model to finance development policies with external savings (basically through long-term foreign bank lendings subjected to flexible interest rates) adopted especially during the 1970s. As a result of the relative loss in dynamism of the manufacturing sector, its relative weight in total GDP fell. In addition, from 1980 to 2010, since the general priorities of the economic policy – particularly between 1980 and the mid-1990s – concentrated in stabilizing high inflation and promoting the adjustment of severe problems of balance of payments and the external debt, the average growth rate of the real GDP was around only 2.7 per cent per annum.
Although a new growth cycle started in 2004, the 2008 financial global crisis suddenly interrupted this trend. The average growth rate of the real GDP between 2004 and 2008 increased to 4.7 per cent, though this performance has been much worse than that of the set of all developing countries.20 Table 1 breaks down the three sectors of the Brazilian economy and shows how Brazil’s productive structure has been changing over the last 60 years.21 In the recent debate about the reasons for the relatively slow growth of the Brazilian economy in comparison with similar economies, the dramatic loss of the relative importance of the manufacturing sector from the 1980s on has been pointed out as one of the main causes to be investigated.22
20 To refer to a larger period, the poor performance of the Brazilian economy between 1999 and 2012 can be revealed by comparing the annual average growth rates of real GDP in Brazil (3.2 per cent) with all developing and emerging countries (5.7 per cent). Data for Brazil is from the Brazilian Institute of Geography and Statistics and for developing and emerging countries from the World Bank database. For details, see Nassif (2011).
21 It should be observed that from 2000 onwards the Brazilian System of National Accounts changed the reference base for its estimates, using data from the annual surveys more extensively. If, on the one hand, this improvement implies more accuracy in the measure of the contribution of each sector to total value added and employment, on the other hand, it has also obviously become more difficult to make comparisons of data with those of previous years. See IBGE (2007).
22 For a long-term analysis of the Brazilian experience of growth and a review of the hot debate between opposing interpretations, see Bresser-Pereira (2006).
Table 1
The main sectors of activity as a share of total real value added in Brazil, selected years (Per cent)
1947 1960 1970 1980 1990 2000 2010
Agriculture 20.7 17.8 11.6 10.1 6.3 5.6 5.5
Total industry 25.2 32.2 35.8 40.9 30.1 27.7 27.5
Manufacturing 19.3 25.6 27.4 31.3 20.7 17.2 14.6
Services 54.1 50.0 52.6 49.0 63.6 66.7 67.0
Source: System of National Accounts, Brazilian Institute of Geography and Statistics (IBGE).
B. The connections between the stylized facts on structural change and economic development and the empirical evidence for the Brazilian economy
In order to deepen the discussion about structural change in Brazil, this section will focus on the Brazilian manufacturing industry following the Kaldorian view about its strategic role in the catching up process of an economy. We will connect the stylized facts already discussed in section II with the indicators of descriptive statistics on the Brazilian economy in the period under study. Except for a few, most of the indicators which will be presented were based on the PADI (Analysis Program of Industrial Dynamics) database of the Economic Commission for Latin American and the Caribbean (ECLAC) that exploits structural data from the manufacturing sector.23
As seen in table 1, the augmented participation of the manufacturing industry in the total value added of the Brazilian economy until the 1980s was also accompanied by a broad diversification of its structure. The 1970s marked the establishment of a diversified productive structure of durable, non- durable, capital goods and intermediary goods, which represented the conclusion of the last stage of the process of import substitution (see Castro, 1985).24 As it will be shown below, the diversification in the industrial production also led to the diversification of exports: in 1964 the share of manufactured and semi-manufactured goods reached 14.0 per cent and in 1980 this percentage increased to 57.0 per cent.25 The consolidation of a diversified industrial structure occurred in the mid-1980s with the maturation of investments implemented in the context of II PND (1974–1979). From the early-1990s on, a set of liberalizing reforms was implemented in the Brazilian economy (e.g. the trade liberalization, external financial openness, privatization of state enterprises, among others) within a context in which high inflation and serious problems in the external sector of the economy prevailed. The rapid loss of participation of the value added of the Brazilian manufacturing sector in total real GDP, which actually had begun in the mid-1980s, as well as a growing international specialization in exports of primary products and natural resource-based manufactured commodities, opened an intense debate in the 2000s on whether or not Brazil suffered from early de-industrialization.26
Stylized facts 1 and 2: structural change in the Brazilian manufacturing industry: resource allocations and employment
According to table 1 above, the dramatic drop of participation of the manufacturing industry in total value added since the 1980s could be, in principle, taken as a sign of early de-industrialization in Brazil.
However, according to the old and new literature on the theme, the diagnosis of early de-industrialization must also take into account other indicators such as the relative growth rates of the manufacturing sector, the reallocations of resources in terms of value added, employment and exports within the manufacturing industry and throughout the economy as a whole, as well as the changes in both productivity and the
23 ECLAC-PADI is an internationally harmonized database, which collects statistical information from national statistical offices. In the Brazilian case, the main source of information comes from the Industrial Censuses and the Annual Industrial Surveys (Pesquisa Industrial Annual – PIA) carried out by the Brazilian Institute of Geography and Statistics (IBGE).
Data for missing years from IBGE’s surveys have been estimated, following ECLAC’s methodological procedures.
Whenever applicable, all information provided in ECLAC-PADI has been converted from each country’s currency to 1985 constant dollar prices.
24 According to the Industrial Census of the Brazilian Institute of Geography and Statistics (IBGE), in 1980 more than 50 per cent of the value added of manufacturing and mining industries came from segments classified as scale-intensive (38.6 per cent), differentiated (11.7 per cent) and science-based (2.8 per cent).
25 It is worth noting that even with the debt crisis in the 1980s, considering only manufactured exports, these amounted to more than 50 per cent of total exports in 1981, and this percentage remained at this level or above until 2008, when it fell to 47.0 per cent (Brazilian Ministry of Development, Industry and Commerce -MDIC).
26 On the debate about early de-industrialization in Brazil, see Palma (2005), IEDI (2005), Jank et al. (2008), Nassif (2008), Oreiro and Feijo (2010), and Bacha and Fishlow (2011), among others.
technological gap over time. In fact, while Rowthorn and Wells (1987) and Rowthorn and Ramaswany (1999) prefer to diagnose early de-industrialization looking at the evolution of economic indicators of a country in absolute terms (like the participation of the manufacturing industry in total value added, employment, exports and so on), Palma (2005) and Bresser-Pereira (2008, 2010), following structuralist and Kaldor’s traditions (1966), give special attention to the relative position of a country’s manufacturing industry in the world economy.
Initially, we will be interested in evaluating what happened only within the Brazilian manufacturing industry between 1970 and 2008, and not in the economy as a whole. Figure 1 shows how the Brazilian industrial structure has been changing since the 1970s, considering a taxonomy of the manufacturing sector according to the technological intensity applied in its productive process. This classification helps to evaluate whether or not the structural change within the manufacturing sector was directed towards the set of segments with higher technological intensity. As this taxonomy breaks down the manufacturing sector into only three groups, a structural change that has been oriented towards the science-, engineering- and knowledge-based segments might signal major potential for spillover gains from productivity over the economy as whole, since those segments are more subject to static and dynamic economies of scale, as Kaldor stressed a long time ago.27
The distribution of the manufacturing value added among the three groups of industries has clearly moved towards an increase in the weight of the science-, engineering- and knowledge-based segment, which accounted for 28.1 per cent of the total value added of the Brazilian manufacturing sector in 1970 and reached 45.8 per cent in 2008. This gain has dramatically been offset by the loss in importance of labour-intensive industries, which reduced their share from 32.0 per cent in 1970 to 16.7 per cent in
27 As our taxonomy breaks down the Brazilian manufacturing industry into only three groups, one could correctly argue that the high level of aggregation might compromise the analysis. However, unfortunately, in virtue of not having sufficient data in the ECLAC-PADI database in the long period under investigation, we could not analyse the data of the Brazilian manufacturing industry at a more disaggregate level.
Figure 1
Value added in the Brazilian manufacturing sector according to technological intensity, selected years
0 10 20 30 40 50
1970 1980 1990 2000 2008
Science, engineering and knowledge based Natural resource based Labour intensive
Source: Economic Commission for Latin American and the Caribbean (ECLAC)-Analysis Program of Industrial Dynamics (PADI) database.
2008. The natural resource-based industries showed a small loss, although roughly maintained their participation at over 30 per cent. Looking closely inside each group, we realized that the strong increase in the participation of the science-, engineering- and knowledge-based segments was due to a growing importance of machinery and equipment, electrical and transport industries. While in the labour intensive group all industries reduced their importance, in the natural resource-based one, while the food industry is still the most important, the oil refining industry gained weight in the period under consideration.
Figure 2 shows the distribution of employment over each group of industries. The same movement is observed in the labour intensive industries which, differently from the other ones with higher employment participation, were the only ones to lose importance in job creation over the time period: their contribution falls from 41.0 per cent in 1970 to 33.8 per cent in 2008. The percentage of employment in the natural resource-based industries changed little from 1970 (34.6 per cent) to 2008 (35.0 per cent). The science-, engineering- and knowledge-based group is the one that shows the greatest increase in employment participation, moving from 24.4 per cent in 1970 to 31.2 per cent in 2008. In 2008 the distribution of jobs in the Brazilian manufacturing industry is about equal among the three groups of industries.
It is also important to analyse the evolution of the participation of employment in the Brazilian economy as a whole. Table 2 shows indicators on this subject in Brazil only between 2000 and 2009, the period in which data are available. Table 2 makes it clear that there was a shift in the workforce from agriculture, but not from total industry (including manufacturing), to the service sector in the period under consideration.
In the case of the manufacturing industry, there was a small increase in the participation of employment in total employment from 12.0 per cent to 12.7 per cent between 2000 and 2009. Except for construction, which had a little increase from 6.7 per cent to 7.1 per cent between 2000 and 2009, the other subsectors of Brazilian industry pretty much kept their relative participation.
Those combined above mentioned indicators are important for understanding the debate of whether or not the Brazilian economy actually suffers from early de-industrialization. Given the complexity of this process, it is not enough to look at only the loss of participation of the manufacturing sector in total value added, which, in the Brazilian case, was relatively rapid and strong from the early 1990s on, as already
Figure 2
Percentage of total employment in the Brazilian manufacturing sector according to technological intensity, selected years
0 10 20 30 40 50
1970 1980 1990 2000 2008
Science, engineering and knowledge based Natural resource based Labour intensive
Source: ECLAC-PADI database.
shown in table 1.28 Actually, as already discussed, if it is looked at from within its structure, the Brazilian manufacturing industry not only still keeps a relatively well diversified structure, with more than 40 per cent of the value added being generated in more sophisticated manufacturing segments, but is also able to absorb a significant part of the workforce (figures 1 and 2, respectively). However, if we look at the economy as a whole, the service sector was already responsible for around 62 per cent of the Brazilian workforce in 2009 (table 2). In addition, as will be shown ahead, the Brazilian manufacturing industry is getting more distant from the technological frontier. How to reconcile all this evidence?
In principle, the existence of a relatively diversified manufacturing sector and the keeping of a balanced distribution of employment in manufacturing between old and more technologically sophisticated industries – by not violating both stylized facts 1 and 2, as discussed in section II – may not be signalling early de-industrialization in Brazil. However, since the Kaldorian tradition stresses the importance of the relative position of the domestic manufacturing industry comparatively to the world economy, if a strong augmentation of the technological gap and a poor performance of the evolution of both exports and trade balance is verified, these indicators would be signalling a tendency of both early de-industrialization together with falling behind, insofar as these results would be violating stylized fact 3 and the basic hypothesis on structural change and economic development, according the Kaldor-Thirlwall theoretical analysis of section II.
So, thus far, a partial conclusion on the structural change in the Brazilian manufacturing sector is that there has been more diversification and it has moved towards segments of more technological sophistication.
As discussed in section II, an economy with a more diversified manufacturing structure tends to show relatively higher aggregate productivity than countries strongly specialized in a few groups of traditional industries.
28 Rigorously speaking, the loss of participation of the manufacturing sector in the Brazilian real GDP began in the middle of the 1980s. So, as already argued by Nassif (2008), if we take into account just this indicator, this phenomenon had begun in Brazil before the introduction of its liberalizing reforms in the early 1990s.
Table 2
Participation of employment in Brazil by sector of economic activity, selected years (Per cent)
Sectors 2000 2003 2005 2007 2009
Agriculture 22.3 21.0 20.9 18.6 17.4
Total industry 19.5 19.0 20.0 20.1 20.5
Mining 0.3 0.3 0.3 0.3 0.3
Manufacturing 12.0 11.9 12.8 12.8 12.7
Utilities 0.4 0.4 0.4 0.4 0.4
Construction 6.7 6.4 6.5 6.6 7.1
Service 58.2 59.9 59.1 61.4 62.1
Total 100 100 100 100 100
Source: System of National Accounts, Brazilian Institute of Geography and Statistics (IBGE).
Stylized fact 3: the diversification of the Brazilian manufacturing industry and its sustainability – evolution of the labour productivity, technological gap and pattern of international specialization So far, the Brazilian manufacturing sector has shown a pattern of industrial change that could suggest that the economy is sustaining a process of catching up. Yet, from a structuralist perspective, another piece of information should be added to evaluate the profile of the competitiveness of the economy. This will be done through the analysis of the behaviour of the Brazilian labour productivity as well as its technological gap in relation to the international technological frontier of the three groups of industries. Figure 3 shows that, since the 1970s, the science-, engineering- and knowledge-based group has been leading the growth of the Brazilian labour productivity. While the labour-intensive manufacturing segment has been clearly behind the other ones, the natural resource-based group has followed close to the average of the manufacturing sector as a whole. Figure 3 also shows that the labour productivity improved significantly in the early-1990s, following Brazil’s trade liberalization, as has been documented in several studies on the theme.29 However, around 1997 productivity gains began to slow down and a clear declining trend is observed in all three groups of industries.
Although it can be realized that the rate of growth in the Brazilian manufacturing labour productivity has been higher in segments of major technological sophistication, it is important to check whether or not the speed of the productivity growth has been enough to keep the economy in a trajectory that reduces its technological handicap. In the Kaldorian perspective, this point is absolutely important. In fact, as Kaldor (1966: 104)) strongly stressed, “rather than the level, the differences in growth rates (among countries) are largely accounted for by differences in the rates of growth of productivity (…) and also that the incidence of technical progress – as measured by the rate of growth of productivity – is higher in manufacturing activities than in other fields, so a great concentration of manufacturing increases the overall rate of advance” (italics from the original).
An estimate of how far productivity gains are from the technological frontier is shown in figure 4, which measures the rate of growth in the Brazilian manufacturing labour productivity by technological intensity in comparison with that of the corresponding groups in the United States.30 This indicator can be evaluated as a proxy for the technological gap.
According to figure 4,31 the productivity gap began to quickly and dramatically widen in all industrial groups near the end of the 1990s. The science-, engineering- and knowledge-based industries showed the lowest productivity gap compared with the other groups, until 2006, when from then on the natural resource-based industries have shown better performance, even though they are still very far from the technological frontier. It should be remarked that, in 1980, the science-, engineering- and knowledge- based industries registered the lowest relative distance from the technological frontier (51 per cent).
So, in spite of the movement of the industrial structure towards more diversified and technologically sophisticated sectors, the international comparison suggests that the Brazilian manufacturing industry might be lagging behind. Rigorously speaking, independently from what happens with the other sectors
29 See Moreira and Correa (1998), Bonelli (2002), Feijó and Carvalho (2002) and Nassif (2003), among others.
30 Even taking into account that the United States has been losing importance in the global economy and is not in the vanguard of all segments of the manufacturing sector, most studies consider that, on average, the country is still at the international technological frontier.
31 This figure is the only one that follows the original classification of the manufacturing sector according to the technological intensity available in ECLAC-PADI database, which misleadingly considers the chemical industry as natural resource-based, instead of as science-, engineering- and knowledge-based. While constructing the other indicators, we were able to take out the chemical industry from the natural resource-based group and include it in the science-, engineering- and knowledge-based industries. But for the indicator shown in figure 4 this was not possible, since ECLAC-PADI database does not show the behaviour of the labour productivity of the chemical industry separately for the United States. Even so, particularly in the Brazilian case, by analysing the rate of growth of the labour productivity by groups, it does not make much difference if the chemical industry is included in either one or the other group.
Figure 3
Labour productivity growth of the Brazilian manufacturing industry, 1970–2008 (Index numbers, 1970 = 100)
50 100 150 200 250
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Science, engineering and knowledge based Natural resource based
Labour intensive Manufacturing industry
Source: ECLAC-PADI database.
Figure 4
The Brazilian technological gap: relative labour productivity in the Brazilian manufacturing sector compared with that of the United States, 1970–2008
(Per cent)
0 10 20 30 40 50 60
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Science, engineering and knowledge based Natural resource based
Labour intensive Manufacturing industry
Source: ECLAC-PADI database.
of the Brazilian economy (primary and service sectors), in a Kaldorian perspective, the technological gap of the manufacturing sector as a whole has been increasing at such a high pace since the end of the 1990s that the level registered in 2008 is enough to draw the conclusion that the Brazilian economy has been characterized by signs of early de-industrialization and a falling behind long-term path. The important issue to be answered is whether or not this falling behind path could be reversed in the medium term.
Before doing some econometric exercises that could provide us with preliminary answers to the above question,32 we will investigate the evolution of the Brazilian exports and trade balance. Figure 5 shows the behaviour of Brazilian exports since 1970. It is a remarkable fact that throughout the 1970s, a period during which the import substitution regime was most intense, manufactured goods increased their importance in Brazilian total exports. Starting at less than 20 per cent of total exports in 1970, this participation more than doubled by 1980. In 1984, manufactured exports represented around 55 per cent of Brazilian total exports, and this participation kept around this mark until 2006, when exports of manufactured goods started to lose participation. This loss is being offset by the increase in exports of basic goods.
Two facts could explain the poor performance of the last few years. On the one hand, related to a more structural source, it could be associated with the enlargement of the technological gap in the manufacturing sector as a whole, a phenomenon that has been happening since the end-1990s, as already analysed.33 On the other hand, the loss of participation of manufactured goods in total exports could be associated with a persistent trend of overvaluation of the Brazilian currency since the 1990s.34 This factor, combined with the significant growth in world trade in the 2000s, could be responsible for putting the Brazilian economy on a dangerous path of specializing in goods in which it has static comparative advantage. By looking at the Brazilian total exports, we realized that this situation was so strongly accelerated between 2006 and 2010 that in this latter year Brazilian exports of basic products (especially primary products and commodities) surpassed those of manufactured goods (figure 5). This set of poor indicators (high technological gap, sharp drop in manufactured exports in recent years and a rapid increase of participation of primary and commodities goods in total exports) are clear preliminary signs that Brazil has actually not only entered into a process of early de-industrialization, but also embarked on a trajectory of falling behind.
32 This will be carefully analysed in section IV, related to some econometric estimates.
33 As an illustration, the share of the Brazilian manufacturing industry in GDP (around 18 per cent) is close to the value observed in developed countries, whose per capita income is on average 7 times the Brazilian’s. This shows the premature character of the de-industrialization process of the Brazilian economy (IEDI, 2005).
34 For details, see Nassif, Feijó and Araújo (2011).
Figure 5
Brazilian total exports classified by intensity of value added, 1970–2010 (Participation in percentage points)
0 10 20 30 40 50 60 70 80
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Basic
Semi-manufactured Manufactured
Source: Brazilian Office of Foreign Trade/Ministry of Development, Industry and Commerce (SECEX/MDIC).
Another piece of evidence to support the argument of both early de-industrialization and falling behind in the past few years could be analysed by the structural characteristics of the Brazilian trade balance.
Figure 6 shows that, while the science-, engineering- and knowledge-based manufacturing industries showed persistent trade deficits, these negative trade balances not only continued to increase sharply over the 1990s, but also dramatically accelerated between 2006 and 2008. Labour intensive manufacturing industries are those characterized by minor importance in Brazilian manufacturing exports and showed their worst trade performance in both the second half of 1990s and in the final years of the series. In turn, primary resource-based manufacturing industries are the only group that had trade surplus during the entire time. The positive trade balance of this latter group has sharply accelerated in the last few years.
A preliminary conclusion could be drawn from this section. If, on the one hand, the Brazilian manufacturing industry can still be characterized as a relatively large and diversified one, on the other, the enlargement of the technological gap, combined with a persistent real exchange rate overvaluation, has been responsible for the loss of international competitiveness in the manufacturing sector (except from the natural resource- based industries), as well as for putting the Brazilian economy on a dangerous path of falling behind.
The science-, engineering- and knowledge-based manufacturing industries, particularly, have sharply enlarged both the technological gap and the trade deficits. From a Kaldorian perspective, the combination of this set of negative factors, by reducing the ability of the manufacturing sector to spillover its gains from productivity to the rest of the economy, might definitively deepen the Brazilian process of early de-industrialization and accelerate the actual falling-behind path in the long run. In the next section, we will carefully investigate not only if the Brazilian economy might be able to reverse this negative trajectory in the medium term, but also if it is subjected to any external constraint to sustain economic growth in the long run.
Figure 6
Trade balance of the Brazilian manufacturing industries classified by technological intensity, 1970–2008
(Billions of US dollars)
Science, engineering and knowledge based Natural resource based Labour intensive -20
-15 -10 -5 0 5 10 15 20
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Source: ECLAC-PADI database.
